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The Forex market is the largest one in the world. Every day, traders buy and sell currencies worth trillions of dollars.
It is a complex market, and FX trading is not for everyone. It requires time, dedication, knowledge, and perseverance.
However, successful Forex traders do exist.
One thing they have in common is that they rely on effective Forex strategies for maximum returns. These can be either technical or fundamental.
Technical Forex Strategies to Master
Technical analysis deals with forecasting future market levels based on previous ones. More precisely, it is based on interpreting charts.
As such, technical analysis is a controversial area.
The Efficient Market Hypothesis tells us that markets are efficient. As such, a trader should not be able to achieve abnormal gains, especially using technical analysis.
A weak form efficient market does not allow gains to be achieved using technical analysis.
But that is only theory.
The Forex market is full of technical traders using Forex strategies that yield impressive returns. They look at past prices and establish clear rules to enter and exit the market.
The advantage of such Forex strategies is that they remove emotions from the trading process. If it is all down to set a level for entry and exit the market, then the emotional factor does not play any role in the trading process.
Examples of technical Forex strategies: Elliott Waves, Gann, Point and Figure, Gartley.
Fundamental Forex Strategies Everyone Should Use
The fundamental analysis comes to complement the technical one. A fundamental trader cannot earn abnormal gains in a semi-strong efficient market because the market will react instantly to new information.
But again, plenty of examples exist that contradict the efficient market hypothesis.
Fundamental analysis deals with everything else other than technical analysis. More exactly, it deals with interpreting economic data, central banks’ statements and monetary policy decisions, and geopolitical and political events.
For example, a presidential election might occur over a weekend – the currency will react when the markets open next Monday.
But mostly, fundamental analysis is interpreting economic data. The strength or weakness of an economy is reflected in its currency.
As such, economic data is either positive or negative for the currency. For instance, the US dollar should strengthen if the US economy creates more jobs, as reflected by a bigger NFP (Non-Farm Payrolls) number or by a lower monthly unemployment rate.
However, despite seeming straightforward, fundamental analysis is trickier than technical analysis. After all, one should only interpret upcoming data – right?
Wrong!
Upcoming data may come with updates on the previous data. As is often the case, revisions to past NFP data are more important than the actual release. Hence, the market participants are confused, and wild price action is the norm.
The best way to make the most of fundamental analysis is to make sure you keep an eye on the economic calendar. Moreover, ensure you understand each release’s implications and read the details of every important report. Most of the time, the details are more important than the actual outcome.
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